Value Stock Investing seeks to provide undervalued stocks ideas in US & Singapore.
Price is what you pay. Value is what you get.
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Sunday, April 28, 2013

Top 10 investment books for Superinvestors

There are many recommended reading list on
the best investment books to read to gain a better knowledge on investing. Many
of these reading lists purely just state the book title and author without
telling the reader why and how these books will benefit them. Moreover, most of these reading lists are
catered for the beginner investor. To address the gap, I decided to come up
with my own top 10 investment books that cater to all types of investors as
well as those that are recommended by famed superinvestors such as Warren
Buffett, Howard Marks, Seth Klarman and etc. I believe in Mohnish Pabrai’s idea
of cloning where he said that an investor would dramatically improve their
results if they simply copied what Buffett and other value investor does. We
not only can copy the stock ideas of these superinvestors, we can also read the
books that they read or recommended.

The selection of the books is based on the
depth of investment concepts covered and recommendations of these
superinvestors. The reading list has been sorted in order of difficulty. Here
are my top 10 investment books.

As Warren
Buffett says "In business, I look for economic castles protected by
unbreachable moats". The wider the economic moat of a business, the more
likely it is to stand the test of time. When Buffett purchases a business, he
pay careful attention to economics of the industry and if the business has an
enduring competitive advantage

This little book by Pat Dorsey explains the company’s economic moat as the
measure of its ability to withstand competitive threats and tough economic
times. It is a quick read and provides detailed analysis about the different
types of durable competitive advantages a.k.a. moats, that a company achieves.
It teaches the beginner investors how to identify business with wide moat when
you see one. Some attributes to identify an economic moat include customer
stickiness, intangible assets, the durability of earnings power etc. If investors
can identify companies with moats and purchase their shares at reasonable
prices, investors will be able to do well in their investments

Money
ball tells the fascinating tale of Billy Beane's ingenious use of statistical
analysis in order to assemble a winning team without the luxury of a large
payroll. The book talks about how the Oakland Athletics selected undervalued
players and won its division. The book is just as much about value investing as
it is about baseball. Just as Billy Beane analyze baseball players objectively
based on the relationship of a player’s salary to quantitative measurements
like on-base percentage, value investors analyze stocks objectively based on
the relationship of a stock’s market price to quantitative measurements like
its discounted cash flow.

Recommended
by Charlie Munger, the vice chairman at Berkshire Hathaway is known to be an
intellectual man and this book is highly recommended by Charlie Munger as an
essential investment book for investors. FIASCO is the shocking story of one
man's education in the jungles of Wall Street. As a young derivatives salesman
at Morgan Stanley, Frank Partnoy learned to buy and sell billions of dollars
worth of securities that were so complex many traders themselves didn't
understand them. In his behind-the-scenes look at the trading floor and the
offices of one of the world's top investment firms, Partnoy recounts the macho
attitudes and fiercely competitive ploys of his office mates. This book is
considered to be the first on the derivatives trading industry

This is a
book written by one of the superinvestors, Joel Greenblatt. He is founder and
managing partner of Gotham Capital and is well known for the invention of Magic
Formula Investing. This book is his first book before the now famous "The
Little Book That Beat the Market". This book covers a wide range of
topics, some of which might be a tad complex for the beginner investor. It
focuses on special situations such as spin off, bankruptcy, restructuring and
merger securities. The book is filled with case studies and examples.

Fund
manager Joel Greenblatt has been beating the Dow (with returns of 50 percent a
year) for more than a decade and this book is filled with his insight in areas
where the individual investor has a huge advantage over the Wall Street
wizards. This book is on Seth Klarman's and Dan Leob's must read list. If this
book finds its place in one of the superinvestor's reading list, it should
definitely be on your reading list as well.

5.
Margin of Safety by Seth Klarman [Intermediate]

This book
is one of the most highly sought after investment books of all time. The title
of the book suggests that it is all about value investing and how seeking a
margin of safety helps to ensure positive stock market return. This
hard-to-find and out-of-print book is a must for aspiring investment
aficionados. It is written by one of the most successful hedge fund managers of
our time, Seth Klarman. Klarman explains the value investing philosophy, the
logic of the value investing strategy, and why value investing succeeds over
the long term. The book is organized into three parts, namely (1) Where Most
Investors stumble (2) A Value-Investment Philosophy (3) The Value-Investment
Process. "Margin of Safety" is recommended by David Einhorn and is a
must-read for investors.

This book
is considered as the bible of value investing and almost all superinvestors had
read and benefitted from this book. Warren Buffett read the first edition of
"The Intelligent Investor" early in 1950, when he was 19. To him, it
was like seeing the light. He said: “I thought then that it was by far the best
book about investing ever written. I still think it is.” This book is written
by the "Father of Value Investing" and recommended by Warren Buffett,
the greatest investor of all time. There should be no further explanation on
why this is one of the top 10 books that must be found on any serious
investor's bookshelf.

Recommended
by Howard Marks, this is one of the most useful investment strategy book and it
provides solid and clear concepts. Ellis
explains how to avoid common traps and get on the road to investment success.
After reading the book, readers will be able to create an investment program
based on the realities of market. The book has since sold half a million copies
and is highly recommended by late management guru Peter Drucker as one of the
best book on investment policy and management.

This is one of the best books on value investing. Bruce Greenwald is also a
professor at Columbia’s Business School, and director of research at First
Eagle Funds. The book is divided into three parts: an overview of what value
investing is; an examination of three specific approaches to value investing;
and case studies of several well-known value investors and the ways they put
the tenets of value investing into practice. It explores the way value
investing evolved over the years and how the basic concepts were used and
modified by Graham disciples to support the present environment without letting
past concepts be forgotten. Though the book provides a deep insight into value investing,
it can sometimes be a bit technical and therefore reads like a college text.

9.
Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud by Howard Schilit [Difficult]
This book is highly recommend by Dan Leob, the fund manager of Third Point.
This book takes an in-depth look at accounting fraud and how to identify
warning signs of a company's impending problems. Obviously this book makes
sense for anyone looking at balance sheets, 10-Q's and 10K's on a regular
basis. A must-read for people who like
detailed analyses of companies and financials

This is a lesser known book among investors but is a great book if you want to
deepen your understanding of analyzing companies and valuation. It teaches you
how to understand the various financial information companies provide. Readers
will learn how to interpret the financial statements from an investor point of
view. This book found its place in the
top 10 list via a recommended by Bill Ackmann, who is famous for shorting
Herballife